Life Insurance Options
What are your life insurance options? The first thing to consider is deciding what you want the policy to do for you. This could vary depending on where you are in life, whether you are married, if you are in your strong income earning years or getting ready for retirement, etc…
Your next step will be deciding how much coverage you need. It may actually be less than you think.
Then comes the task of deciding how much coverage you can afford. The cost of insurance (the premiums you pay) will most commonly be determined by your age and your health. The various insurance companies base their premiums on their own risk tolerances and decide how much they will charge for the level of coverage you can qualify for. This is why it makes sense to work with an agent that can help you navigate the different carriers, understand their underwriting guidelines, and steer you toward the policy that makes the most sense for you and your family.
Let’s start with understanding some of the more basic life insurance options available.
There are basically two major types of life insurance – term and whole life. Whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. In 2018, 4.0 million individual life insurance policies bought were term and about 5.9 million were whole life, according to the American Council of Life Insurers.
Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance options sold to individuals.
Term Life Insurance
Term Insurance is the simplest form of life insurance. The simplest option pays only if death occurs during the term of the policy, which is usually from one to 30 years. Many carriers include what is known as living benefits which make some or all of the death benefit available if you are injured, experience critical illness, or receive a terminal diagnosis. Living benefits actually being paying the death benefit while you are still alive. This benefit can help with bills while you are unable to work.
Term policies do have an expiration date. Some include an option to be converted to a permanent policy as you approach the end of the term.
Whole Life Insurance
Whole life or permanent insurance stays with you as opposed to expiring on a certain date. There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.
In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the company keeps the premium level by charging a premium that, in the early years, is higher than what’s needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.
By law, when these “overpayments” reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.
In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product—universal life insurance and variable universal life insurance.
For more on the different types of whole life/permanent insurance and how you can provide protection for your family, fill out the form below to speak with a licensed field underwriter to learn about the best options for you and your family: